Mazloom v. Navient Solutions, Inc.Mazloom v. Navient Solutions, Inc.
So Ordered.
Signed this 26 day of January, 2023.
Diane Davis
United States Bankruptcy Judge
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APPEARANCES:
Attorneys for Plaintiff
30 South Pearl Street, 11th Floor
Albany, NY 12207
GEORGE CARPINELLO, ESQ.
ADAM SHAW, ESQ.
JONES SWANSON HUDDELL & DASCHBUCH, LLC
Attorneys for Plaintiff
601 Poydras Street, Suite 2655
New Orleans, LA 70130
LYNN SWANSON, ESQ.
FISHMAN HAYGOOD LLP
Attorneys for Plaintiff
201 St. Charles Avenue, 46th Floor
New Orleans, LA 70170
JASON W. BURGE, ESQ.
Attorneys for Defendants
1251 Avenue of the Americas, 20th Floor
New York, NY 10020
K. ELIZABETH SIEG, ESQ.
JOSEPH A. FLORCZAK, ESQ.
Honorable Diane Davis, Chief United States Bankruptcy Judge
MEMORANDUM-DECISION AND ORDER
INTRODUCTION AND PROCEDURAL BACKGROUND
In this adversary proceeding, Stephanie Mazloom (“Plaintiff“) seeks a determination that her debt to Navient Solutions, LLC and Navient Credit Finance Corporation (“Defendants“) falls outside of the exception to discharge for student loans outlined in
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funded in part by the government as that term is used in
Both parties previously moved for summary judgment on this issue. The Court denied both motions in a prior opinion in light of the underdeveloped record at that time. (ECF No. 108.) Accordingly, the Court will assume some degree of familiarity with the procedural history of the case through its prior decision. Following additional discovery and briefing, the parties once again filed cross-motions for summary judgment, each arguing for judgment as a matter of law under both
Because the Court finds that Plaintiff‘s loan is excepted from discharge as a “qualified education loan” under
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or part by a governmental unit. Accordingly, the Court grants Plaintiff‘s Motion for Summary
JURISDICTIONAL STATEMENT
The Court has jurisdiction over the Parties and subject matter of this adversary proceeding pursuant to
STANDARD OF REVIEW
The standard of review is unchanged from the Court‘s previous decision. Mazloom v. Navient Sols., LLC (In re Mazloom), 2022 Bankr. LEXIS 806 (Bankr. N.D.N.Y. Mar. 29, 2022). The Court may enter summary judgment only if it concludes that there is no genuine dispute as to the material facts and that, based on the undisputed facts, the moving party is entitled to judgment as a matter of law.
If the moving party meets its burden of demonstrating the absence of a genuine issue of material fact, the burden then shifts to the non-moving party “to come forward with evidence
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sufficient to create a genuine dispute as to a material fact for trial.” In re Khan, 2014 Bankr. LEXIS 4205 at *17 (Bankr. E.D.N.Y. Sept. 30, 2014). The non-moving party must “do more than simply show there is some metaphysical doubt as to the material facts.” Id. (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). A party moving for summary judgment can meet its burden either by producing evidence showing the absence of a genuine issue of material fact, or by pointing out to the Court that there is an absence of evidence supporting one or more essential elements of the non-moving party‘s case. In re Krautheimer, 210 B.R. 37, 56 (Bankr. S.D.N.Y. 1997); Long Oil Heat, Inc. v. Spencer, 375 F. Supp. 3d 175, 190 (N.D.N.Y. 2019) (same).
In this proceeding, both Parties have moved for summary judgment to determine whether the Plaintiff‘s student loan debt is excepted from discharge pursuant to
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U.S. Dist. LEXIS 24201 (E.D. Mo. Feb. 29, 2016) (same); Ohio Cas. Ins. Co. v. Twin City Fire Ins. Co., 2018 U.S. Dist. LEXIS 234831 (E.D.N.Y. June 28, 2018) (same).
In an action to determine the dischargeability of a student loan debt pursuant to
FACTS
From 2006 through 2008 Plaintiff attended medical school in Antigua and Barbuda. Decl. of Stephanie Mazloom ¶ 3, ECF No. 41. Plaintiff was accepted to the American University of Antigua/Kasturba Medical College Twinning Program. Decl. of Joseph Florczak, Ex. B, ECF No. 152-2. In August 2006, in order to finance the cost of her education, Plaintiff obtained a private student loan from Nellie Mae Bank in the amount of $38,400 (“Private Student Loan“). Defendants’ Response to Plaintiff‘s Counter-Statement of Undisputed Material Facts 2, ECF No. 84. Nellie Mae Bank was one of the predecessors-in-interest to defendant Navient Solutions LLC, which has at all relevant times serviced the Private Student Loan. Id. This loan was made as a part of the EXCEL Grad Loan Program. Decl. of Patricia Peterson ¶ 4, ECF No. 56-2. As a part of the loan application process, Plaintiff signed a promissory note detailing the terms under which she received the Private Student Loan. Id. at Ex. A. The medical school listed on Plaintiff‘s loan application was Kasturba Medical College (“KMC“); the American University of Antigua (“AUA“) was not listed on any part of this application. Id. It is undisputed that at the time Plaintiff received her loan, KMC was a Title IV institution. Decl. of Joseph Florczak, Ex. E, ECF No. 152-
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5. Plaintiff signed this promissory note, which she acknowledged was “true, complete, and correct to the best of [her] knowledge and belief[.]” Decl. of Patricia Peterson, Ex. A at 9, ECF No. 56-2. Plaintiff later received a Truth-In-Lending statement (“TILA Statement“), which stated that the loan received by Plaintiff was to pay for an education from KMC, and that the Private Student Loan funds would be sent directly to KMC. Decl. of Stephanie Box, Ex. 1, ECF No. 151-1.
The promissory note included language stating that “EXCEL Grad Loans...are private education loans...that complement the Federal Stafford Loan program...” and that Plaintiff‘s “loan is an educational loan and is made under a program that includes Stafford Loans and other loans
On February 21, 2018, Plaintiff filed a petition under Chapter 7 of the Bankruptcy Code. Decl. of Stephanie Mazloom ¶ 6, ECF No. 41. Plaintiff scheduled the Private Student Loan in the amount of $38,400, described it as a “student loan” and did not classify it as contingent, unliquidated or disputed. Plaintiff‘s Counter-Statement of Undisputed Material Facts 7, ECF No. 85. On June 4, 2018, this Court entered its order discharging all of Plaintiff‘s properly scheduled debts, excluding those generally excepted from discharge under
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that the EXCEL Grad Loan is a Private Student Loan. Plaintiff‘s Memorandum of Law in Opposition to Defendants’ Initial Motion for Summary Judgment 2, ECF No. 86.
On June 10, 2020, Plaintiff requested that her Chapter 7 case be reopened to bring the current adversary proceeding against Defendants. Id. at 3. The Court granted the motion on June 24, 2020, and Plaintiff commenced this adversary proceeding on July 2, 2020. Id. Plaintiff‘s complaint does not allege that the Private Student Loan caused Plaintiff undue hardship. Rather, the Parties’ Summary Judgment Motions now before the Court concern only whether the Private Student Loan is dischargeable pursuant to
DISCUSSION
Section 523(a)(8) restricts the dischargeability of “four categories of educational debt from discharge,” namely: (i) educational benefit overpayments or loans made, insured, or guaranteed by a governmental unit; (ii) educational benefit overpayments or loans made under any program partially or fully funded by a governmental unit or nonprofit institution; (iii) funds received as an educational benefit, scholarship or stipend; or (iv) qualified educational loans as defined in
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Section 523(a)(8)(A)(i):
Section 523(a)(8)(A)(i) excepts from discharge “an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution.” Defendants assert that
Because the primary purpose of the bankruptcy discharge is to provide a fresh start to the honest but unfortunate debtor, courts have long recognized that exceptions to discharge, including
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specifically, Congress was concerned with “safeguarding the financial integrity of governmental entities and nonprofit institutions that participate in educational loan programs.” 4 Collier on Bankruptcy ¶ 523.14[1] (Richard Levin & Henry J. Sommer eds., 16th ed.). This Court is mindful of these underlying purposes of
Defendants fail in their motion for summary judgment on essentially the same grounds as in their previous motion. As articulated in the Court‘s previous decision, Defendants are entirely reliant on the boilerplate language of the promissory note, coupled with the self-serving statements of Patricia Peterson to bolster the notion that the Private Student Loan was made as part of an unnamed program funded in whole or part by a governmental unit. Despite seemingly exhaustive discovery conducted by the parties since the Court‘s previous decision, Defendants have returned with the same arguments as their initial motion. Defendants state that “the testimony of Navient employee Patty Peterson, [and] the promissory notes in the Excel Grad Loan program contained substantially identical disclosures regarding it being part of a broader program including Stafford loans from 2003 until the termination of the Excel Grad Loan program in 2008.” Defendants’ Cross-Motion 16, ECF No. 150. This is the same tautological reasoning that the Court found unpersuasive in the past, and it carries no greater weight today. The failure to bring forward any additional documentation that could substantiate the existence of a named program that included both the EXCEL Grad Loans and Stafford loans is particularly damaging to Defendants’ position given the substantial discovery conducted in search of that exact evidence.
Defendants not only rely on the same evidence as they did in their initial motion for summary judgment, they continue to
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their briefs drawing comparisons between the current matter before the Court and both Mader v. Experian Info. Sols., LLC, 2020 U.S. Dist. LEXIS 132073 (S.D.N.Y. July 24, 2020) and In re Drumm, 329 B.R. 23 (Bankr. W.D. Pa. 2005). Defendants do not use these cases to craft new arguments, but instead disregard the past pronouncements of this Court in the hopes that the same old approach will somehow yield different results. This is a forlorn hope. These cases remain inapposite in the present case. Not only that, in the intervening period the Second Circuit held that the district court‘s reliance on the declaration of Ms. Peterson as sufficient grounds to grant summary judgment to Defendants in the Mader case was in error. Mader v. Experian Info. Sols., LLC, 2023 U.S. App. LEXIS 79 at *8 (2d Cir. Jan. 4, 2023). Given the lack of additional, relevant evidence or caselaw from Defendants, their motion for summary judgment must, once again, be denied.
Turning to Plaintiff‘s motion for summary judgment, Plaintiff again seeks a determination that the Private Student Loan was not funded, even in part, by a governmental unit as required by the terms of
Other courts around the country have accepted a broad range of evidence to establish that a particular loan was made under a program funded in whole or in part by a non-profit or governmental unit. The Second Circuit has articulated the standard that the non-profit or governmental unit must have made “any meaningful contribution” to the program to satisfy
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resources to supporting the program.” Id. at 106. As with O‘Brien, whenever a court has found a program in existence that comports with the requirements of
Plaintiff‘s previous motion for summary judgment, while legally sound, was undermined by an incomplete factual record. Plaintiff was overly reliant on a 2014 Prospectus
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modification or implementation of the ‘program’ described in Plaintiff‘s promissory note,” as well as documents related to the EXCEL Grad Loan Program and the promissory note itself. Plaintiff‘s Motion for Summary Judgment, Ex. A, ECF No. 140-3. Plaintiff also conducted an additional deposition of Patricia Peterson, an executive with Defendants, to discuss these newly discovered documents as they related to the program in question. The result of this process reveals that the unnamed ‘broader program’ exists only as a sentence in a promissory note meant to protect Defendants debt from being discharged in bankruptcy. Put simply, Defendants’ broader program does not exist.
The language in the promissory note upon which Defendants heavily rely states, in pertinent part:
‘I understand that this loan is an educational loan and is made under a program that includes Stafford Loans and other loans and which is funded in part by non-profit organizations, including governmental units and, therefore, is not dischargeable in bankruptcy[.]’
Defendants’ Motion for Summary Judgment, Peterson Decl., Ex. A, ECF No. 56-3. Throughout every document provided by Defendants, this is the sole reference made to the broader program upon which Defendants’ entire argument rests. Furthermore, Defendants’ own longstanding executive, Patty Peterson, was unable to point to any documents that included this language apart from the promissory notes. Peterson Dep. 95:21-101:8, Aug. 5, 2022, ECF No. 140-5. When asked how she would determine if a loan offered by Defendants was a part of the broader program or not, Ms. Peterson was unable to provide any means of determining this apart from checking for the boilerplate language in the promissory note. Id. at 196:16-197:15. Nor could Ms. Peterson name a single document released to the public that included any mention of the broader program or included the language from Plaintiff‘s promissory note. Id. at 332:9-22. This includes legal disclosures provided to the government, including SEC filings. Id. at 41:12-43:4. Ms. Peterson
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acknowledged that loans within the EXCEL Grad Loan Program were not governed by federal regulations under the Higher Education Act of 1965, given that loans within that program were entirely private. Id. at 335:1-18.
In the absence of any substantial and verifiable relationship between the private loans offered by Defendants and the Stafford loans that allegedly existed under the purported broader program, counsel for Plaintiff attempted to define exactly what Defendants believe had brought this umbrella program into existence. In the latest deposition of Ms. Peterson, counsel and the witness had the following exchange:
Q: It‘s your testimony that the broader program, as you defined it, exists in this point in time because Nellie Mae is offering this EXCEL loan and is also offering Stafford and PLUS loans, is that your testimony?
A: Yes...the idea is forthem to get one stop for all of their financing needs.
Id. at 113:6-14. This notion of ‘one stop shopping’ is fundamentally insufficient to create a program as that term is used in
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receiving EXCEL Grad Loans, there is no requirement that applicants do so before receiving EXCEL Grad Loans. Id. at 62:3-15. When asked to point to language in any document that speaks to the existence of the broader program apart from the language in the promissory note, Ms. Peterson could point to nothing more than the platitudinous language about the benefits of one-stop shopping. Id. at 225:14-227:12. While programs such as the EXCEL Grad Loan Program are governed by specific documents and can be found listed on internal documents collecting all private loan programs offered by Defendants, there exist no corresponding documents for this unnamed broader program. Id. at 124:14-125:23.
Defendants, in an effort to evade the debtor‘s discharge, placed boilerplate language into their promissory notes claiming that their private loans were a part of a broader program that also offered federal Stafford loans. Defendants did nothing else to bring this broader program into existence. Its contents cannot be identified without use of the promissory note, it is not referenced in either internal or public documents, and there are no practical benefits or effects of any kind to obtaining both loans in the alleged program. It exists solely in the promissory note and for a single purpose: to prevent the discharge of debts pursuant to
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Section 523(a)(8)(B):
In addition to the above, both parties have also moved for summary judgment to determine whether the Private Student Loan is excepted from discharge pursuant to
Both Parties agree that the ‘purpose test,’ also known as the ‘substance of the transaction test,’ governs in this case. This test, which has been adopted by a number of circuit courts throughout the nation, holds that the proper analysis in a
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Sokolik v. Milwaukee Sch. of Eng‘g (In re Busson-Sokolik), 635 F.3d 261 (7th Cir. 2011). The parties agree on the operative facts in this case, but dispute the application of the purpose test to those facts. Plaintiff would have the Court apply the purpose test at a high level of generality, arguing the purpose here should be read as ‘educational’ only, and that the Court should then look beyond the stated purpose to the actual use to determine the more specific purpose. To that end, that more specific purpose would be an education at a non-Title IV university, AUA. Defendants, however, argue that the purpose test should be applied with a high degree of specificity from the outset, thus obviating any need for the Court to look beyond the initial agreement between the Parties. Here, that specific purpose would not be merely an ‘education,’ but rather ‘the cost of attendance at Kasturba Medical College,’ as stated in the promissory note signed by Plaintiff and the Truth-in-Lending Statement she received. The Court believes that the bright-line approach advocated by Defendants is most consistent with the statutory language of
The plain text of
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While the plain text alone is enough to support the Court‘s application of the purpose test, it is also the case that
The bright-line rule adopted by the Court today also has the advantage of not requiring lenders to make decisions about whether to lend to prospective students based upon that student‘s unknown future behavior. If, as Plaintiff argues, the purpose of a loan could be divined not just from the language at the time of the agreement, but from subsequent actions by the debtor, then the purpose of the loan would not be determinable at the time the agreement was made. In the present case, while the signed note states KMC, Plaintiff believes that her actions after making this agreement in attending AUA should alter that purpose.
This would undermine lender confidence in issuing loans, and could lead to an increase in the fees imposed by lenders to cover the additional risk, which would in turn further burden the federal government as the guarantor for many of these loans. Applying the purpose test to the
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specific terms of the agreement between the parties ensures the agreement between the parties is honored and not subjected to future, unknown factors.
Finally, this bright-line rule is more consistent with the application of the purpose test made by other courts and prevents arbitrary application on a case-by-case basis. Plaintiff attempts to muddy the waters by pointing out that, in many of the leading cases applying the purpose test, “there was no factual dispute that plaintiff had in fact attended a Title IV school[.]” Plaintiff‘s Reply Memorandum 8, ECF No. 155. Plaintiff argues that because the purpose test was not being applied to the identical issue of the specific school attended by debtor in these cases, they are of no use in the present matter. For example, in Murphy v. Pa. Higher Educ. Assistance Agency (In re Murphy), 282 F.3d 868 (5th Cir. 2002), the parties agreed that the debtor attended a Title IV institution, and the dispute centered on whether the term ‘educational’ included expenses such as room and board. Plaintiff is correct that the court in Murphy did not need to use the purpose test to determine that the loans were made to attend a specific institution, but merely to discern that the loans were educational because they were made to a qualifying institution, that is, a Title IV school. This, however, does nothing to support the contention that the purpose test is somehow limited to establishing that loans were made for educational purposes, and thus cannot be used to determine the exact institution for which the debtor procured the loan. Had that more specific issue been in doubt in Murphy, there is no indication that the court would not have used the purpose test to determine the exact institution. Plaintiff attempts to use this same flawed reasoning to discount the application of the purpose test in Conti v. Arrowood Indem. Co. (In re Conti), 982 F.3d 445 (6th Cir. 2020), and Monyak v. Navient Sols., LLC, 2021 Bankr. LEXIS 239* (Bankr. D. Ohio Feb. 2, 2021), with similarly unpersuasive results. Even if the caselaw supported such an interpretation of the purpose test, to adopt this approach would inevitably lead to inconsistent outcomes among
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different courts. Plaintiff here would like the Court to use the purpose test solely to determine that the loan is ‘educational’ in nature, and then look at the facts as they developed after the agreement. But Plaintiff provides no reasons why using the purpose test only to determine if a loan is educational is better than using the purpose test to determine if a loan was for a ‘qualified educational purpose.’ Plaintiff simply proposes an ad hoc level of generality that suits her position in this case, without considering its application in different circumstances. Using the purpose test to establish the specific purpose of the loan, rather than any abstract and generalized purpose, avoids this pitfall while conserving judicial time and resources.
Applying this straightforward test to the present facts, it is incontrovertible that the Private Student Loan was incurred to cover the qualified education expenses of Plaintiff, and so constitutes a non-dischargeable debt under
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Peterson, Ex. B, ECF No. 56-2; see, e.g., Monyak, 2021 Bankr. LEXIS at *3-4. The Nellie Mae Loan Certification completed by Ms. Barrie is unavailing in light of the language of the promissory note, which named KMC as the school for which Plaintiff sought the loan and in which Plaintiff acknowledged the information she provided was, “true, complete, and correct to the best of [her] knowledge and belief[.]” Decl. of Patricia Peterson, Ex. A at 9, ECF No. 56-2. Any arguments that this language in the promissory note is mere boilerplate language akin to the statement about the ‘broader program’ discussed above is based on a faulty analogy. That ‘broader program’ language was the same in every promissory note and not based upon any facts specific to the applicant and their loan. Meanwhile, the exact school for which Plaintiff sought her loan, KMC and not AUA, was specifically tailored to her application. Furthermore, after receiving approval of the loan for KMC, Plaintiff received the “TILA Statement” which unambiguously stated that the loan received by Plaintiff was to pay for an education from KMC. Decl. of Stephanie Box, Ex. 1, ECF No. 151-1. The TILA Statement also stated that the funds for the Private Student
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Counsel for Plaintiff argued at the hearing that to expect Plaintiff, a first-year medical student, to “undertake a full inquiry of the scope of the bankruptcy laws and the concept of Title IV, and whether the school she‘s going to is properly identified as Kasturba or AUA” is an unreasonably high bar, and so Plaintiff should be excused from her agreement to the terms of the promissory note and the language of the TILA Statement. Hearing on Renewed Motions for Summary Judgment 59:3-18, Oct. 25, 2022, ECF No. 164. The extent of Plaintiff‘s obligation, however, is not so onerous as her counsel would make it seem. There was no requirement to conduct any research into bankruptcy law at the time the loan was taken, nor even to investigate the relevance of the Title IV designation. All that was required of Plaintiff was that she have knowledge of the purpose for which the loan was incurred. If Plaintiff now says that she failed to meet this minimal requirement, it does not require, or even permit, the Court to excuse her of her obligations under the promissory note. Plaintiff is bound by her representations as to the clear intended purpose for which she received the Private Student Loan. Defendants have shown that there is no genuine issue of material fact in their Motion for Summary Judgment as to
CONCLUSION
For the forgoing reasons, the Court grants Plaintiff‘s motion for summary judgment as to the first claim for relief under
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grants Defendants’ motion for summary judgment as to the second claim for relief under
Accordingly, it is hereby
ORDERED, that Defendants Navient Solutions LLC‘s and Navient Credit Finance Corporation‘s Initial Motion for Summary Judgment is Denied in part and Granted in part; and it is further
ORDERED, that Plaintiff Stephanie Mazloom‘s Motion for Summary Judgment is Denied in part and Granted in part; and it is further
ORDERED, that Plaintiff Stephanie Mazloom‘s Private Student Loan is a non-dischargeable debt, pursuant to
ORDERED, that the Parties are directed to appear at a conference to consider
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